Healthcare Real Estate: As Space Shrinks, Creativity Grows

A changing Memphis landscape in healthcare real estate is forcing those involved to refocus their plans and become more creative.

Local experts say the shift has come about because of several key factors: a lack of buildable space, population growth and a rapidly growing demand for additional healthcare services.

"Medical development is still a healthy market, and there is still high demand," said Matt Weathersby, principal of Cushman and Wakefield Commercial Advisors, a commercial real estate services firm. "Depending on the area, many existing properties are full, so clients have to rehab existing buildings."

While rehabbing existing buildings may be one solution to finding more space in order to increase services, one Mid-South healthcare system is looking to overcome the challenge with the construction of a free-standing emergency room in one of the fastest-growing residential areas in Shelby County.

Arlington

Baptist Memorial Health Care's plan to build a free-standing emergency department near the intersection of Interstate 40 and Airline Road near Arlington received a boost last month from a judge's ruling. The judge, who is with the Administrative Hearings Division of the Secretary of State's office, reversed the Tennessee Health Services and Development Agency's decision to deny Baptist's request for a certificate of need to build the facility.

The hospital had applied four times and been denied each time for permission to construct a facility in various locations of the rapidly growing areas of Hickory Hill, Lakeland and Arlington.

The HSDA voted last June on Baptist's request. The tie vote on the proposal meant approval was denied and hospital representatives appeal the decision to the HSDA board last August. The judge's ruling grants permission for Baptist to build the first facility of its kind in West Tennessee.

The $10 million project will be developed in partnership with Regional One Health. It will include eight treatment rooms and a helipad and equipped with CT scan, X-ray and ultrasound imaging technology. The facility is expected to ease the high-volume pressure on other emergency departments in the area.

Greg Duckett

According to Greg Duckett, senior vice president and chief legal officer for Baptist, its system is handling a significant number of patients from the Arlington-Lakeland area at its emergency room at Baptist East.

"We followed the agency's advice and looked to provide service to patients in Lakeland and Arlington who are already visiting our hospital," Duckett said. "It's not practical to expand our emergency department on our Memphis campus. We can reduce the volume of patients from the area coming to the East Memphis campus. They are already in our system and will not have to drive as far to receive care."

Access to nearby care would also benefit residents in rural northeastern Shelby County as well as those in Fayette, Haywood and Tipton counties, Duckett added. Brownsville's Haywood Park Community Hospital closed in 2014, and Methodist Fayette Hospital in Somerville, Tennessee, closed a year later.

Duckett said that Baptist purchased land for the free-standing emergency department near Arlington because hospital representatives had predicted growth in the area.

"We haven't seen clients move out to Arlington yet, but as the population continues to grow, and if Baptist builds a medical facility out there, I think it will spark an acceleration of medical development," Weathersby said.

East Memphis, Germantown

Land scarcity is a challenge in East Memphis and Germantown, where there already is a significant healthcare presence that is in convenient proximity to Baptist Memorial Hospital, Memphis; Methodist Le Bonheur Germantown Hospital; and Saint Francis Hospital, Memphis. There is a demand for medical facilities on Wolf River Boulevard in Germantown and Poplar Avenue in East Memphis, according to Weathersby.

Matt Weathersby

"There are land constraints along the Wolf River corridor, and space is tight in the area," Weathersby said. "Because of limited space, many clients look at the Poplar corridor in East Memphis between Ridgeway Road and Poplar Avenue."

Weathersby said it's common to see medical clients refurbish traditional office space into medical office space in East Memphis. Medical offices have located in the PennMarc Centre at 6401 Poplar Avenue, the Atrium buildings at 6800 Poplar Avenue near Kirby Parkway and the Forum buildings at 6750 Poplar Avenue and 1790 Kirby Parkway.

Despite space limitations, medical construction is taking place in Germantown. A three-story, $30 million, 120,000-square-foot expansion project for Campbell Clinic, under construction since October, is scheduled to be completed by the end of the year.

Forrest Owens, Alderman for the city of Germantown, confirmed that an application was filed recently to rezone 15 acres from residential to commercial on Wolf River Boulevard.

It has been reported that Cypress Realty and Ford & Jarratt Development Co. plan to develop three two-story, 50,000-square-foot buildings in a land lease agreement with the current residential property owner.

"This represents the last underdeveloped parcels along the Wolf Rover corridor," Owens said. "Any other commercial development will have to be rehabbed or built out."

According to Weathersby, the process for rezoning and approval is extensive, so it could be several years before the project comes to fruition.

Memphis Medical District

The majority of medical development inside the Medical District continues to be expansion and renovations of facilities.

"Larger systems and institutions are continuing to rehab their older hospitals," Weathersby said. "We aren't seeing clinics spring up in the area. A lot of work is happening, but it's being done by all of the major systems inside the medical district. The only exception is St. Jude."

Methodist Le Bonheur Healthcare is scheduled to complete construction on its 450,000-square-foot Shorb Tower this month. The nine-floor tower expansion will house a helipad, the Methodist Transplant Institute, a new surgical department and a cardiovascular intensive care unit.

Originally, the tower was supposed to house consolidated services with West Cancer Center, but with the recent termination of that partnership, the first two floors of the tower will include oncology services for Methodist's newly launched Methodist Cancer Institute. Additionally, the top floor will house inpatient rooms for bone marrow transplant patients, according to Richard Kelley, vice president of corporate facilities management at Methodist Le Bonheur Healthcare

Kelley said 20,000 square feet of space would remain open on the top floor as Methodist's cancer program grows. The hospital system will begin to move outpatient services into the tower later this month, according to Kelley.

Upon completion of the tower expansion, the existing hospital will undergo a 65,000-square-foot renovation of its pharmacy, cellular therapy services and blood transfusion area. Additionally, the current building at the corner of Union and Bellevue will be demolished and become the hospital's main entrance.

"Before the construction and modernization projects began, there were 15 points of entry into the hospital," Kelley said. "It can be daunting for visitors to find their way around the hospital. After construction is complete, we will have refined it to only three points of entry. It will be easier to get around, and many of the same services will be contained in one building."

Kelley confirmed that the modernization of the Methodist University Hospital would continue for a number of years, and the hospital's north tower would undergo a modernization of patient rooms upon completion of the tower expansion and modernization to the main hospital.

Le Bonheur Children's Hospital will complete construction of its $23 million, 37,280-square-foot operating room on the second floor of the hospital this month.

Additionally, Le Bonheur plans to expand its heart institute at the corner of Poplar Avenue and Dunlap Street. The two-story, $37.6 million, 55,000-square-foot expansion will result in 19 additional beds for its cardiovascular unit and a new MRI and catheterization laboratory.

Construction and development continues at the University of Tennessee Health Science Center (UTHSC) as part of its 10-to-15-year campus master plan.

The Tennessee Building Commission executive committee approved in March UTHSC's lease of a 10-acre plot on Jefferson, Orleans, Court and Madison to Henry Turley Co. as a managing partner for apartments in the medical district. The developer will build 300 to 400 apartment units as part of a land lease development with UTHSC.

Ken Brown, PhD

"This will not be student housing," said Ken Brown, PhD, Executive Vice Chancellor and COO of UTHSC. "The apartments will be open to all medical students in the area, hospital employees or anyone who wants to reside in the medical district."

The university is in a two-year process of renovating three of the campus' oldest buildings. The $70 million renovation in what is known as the historic quadrangle will create a new general administration building, new College of Nursing building and a building for basic sciences.

The $47 million Dunn Dental expansion project is open for contractor bid and, according to Brown, the expansion will add an additional 70,000 square feet to the campus' existing College of Dentistry building. The new building will house additional faculty offices, classrooms and a new dental clinic for adults with special needs.

The university has submitted request to the state for a $10 million gross anatomy laboratory. The 20,000-square-foot laboratory will be housed on the fourth floor of UTHSC's general education building.

Additionally, Brown said UTHSC is in discussions with Memphis Bioworks concerning the possible purchase of the foundation's vivarium, which is operated by TriMetis Life Sciences, and the surrounding green space, which at one time was home to Baptist Memorial Hospital. Also, Brown said the university is considering purchasing the Memphis Food Bank building on Dudley Street to expand its Plough Center for Sterile Drug and Delivery Systems' pharmaceutical compounding facility.

David Dunning

Renovations continue at the Memphis VA Medical Center. CEO David Dunning said all buildings are either under renovation or will be renovated. VA Memphis plans to renovate its spinal cord injury rehabilitation pool and gym and build a new clinical laboratory this year, according to Sheena House, chief of engineering service for the medical center.

Construction continues at St. Jude Children's Research Hospital on its $412 million, 625,000-square-foot advanced research center, which is one of the largest developments in the hospital's history. The center will consist of eight floors and house new state-of-the art laboratories focusing on immunology, neurobiology, cell and molecular biology, gene editing, metabolomics, microscopy, epigenetics genomics, immunotherapy and RNA biology.

DeSoto County

Medical services continue to be in high demand in DeSoto County, the fastest-growing county in Mississippi.

"There's already a large medical office presence on Airways in Southaven, and there's still a demand for that area with two major hospitals so close in DeSoto County," Weathersby said.

Methodist plans to finish construction of a one-story, 14,000-square-foot medical office building on Getwell Road this summer. Kelley says it will be in close proximity to Methodist's outpatient diagnostic center on Airways.

Additionally, the hospital system is in the process of planning a $3 million expansion to its Methodist Hospital in Olive Branch. Kelley says the hospital system plans to add a catheterization laboratory, cesarean section room and four new intensive care unit patient rooms to the existing hospital.

Future Growth

Despite a scarcity of land scarcity, continued growth is expected

"Look for medical growth along the I-40 corridor toward Fayette County and Olive Branch," Weathersby said. "There is still land available to develop in those areas."